Will U.S. bailout work?
The Treasury's $700 billion rescue would push US into uncharted territory.
Behind congressional maneuvering over the shape of a banking-system bailout lies a crucial question: Will it work?
Doubts on that point, along with concerns over the price tag and competing rescue ideas, were a central factor in prompting a midweek slowdown in the rush toward handing the US Treasury $700 billion to buy up troubled mortgage investments.
The plan urged by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke would push the US government into all but uncharted territory – trying to tackle a systemic financial crisis with a system-wide purchase of problem assets. It might work, but there's no guarantee. And whatever plan is put in place is almost sure to evolve beyond a one-step crisis fixer.
At the same time, finance experts say such doubts aren't an argument for inaction. Billionaire Warren Buffett infused a measure of hope into roiled financial markets Tuesday, showing the confidence to buy a stake in investment bank Goldman Sachs. But the risk of continued chaos remains significant.
"We're dealing with a market that is right now panicked and riddled with uncertainty," says Carmen Reinhart, an economist at the University of Maryland. "What I think the current tactic does is it makes [government intervention] blanket. It is a more generalized market approach to the bailout, and that is to be preferred."
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